MinistryCPA - Corey A. Pfaffe, CPA, LLC

This is another posting in the MinistryCPA Top 10 series:  Understanding payroll can be a difficult task in any business. Knowing how to onboard new employees, pay them, file tax documents, and deal with other benefits is a daunting task. We have created a list of some of the top payroll compliance issues that we see here at MinistryCPA. 1.       Employee vs Independent Contractor Understanding the difference between an employee and an independent contractor is essential to the payroll process. If a person is classified as an employee, then the business is responsible for employment taxes such as social security, Medicare, unemployment, and income tax withholding. If the person is classified as an independent contractor, the business is not responsible for any of these taxes.  There are three factors that help a business determine whether an individual is an employee or an independent contractor. These three factors are the degree of behavioral...

Question: A treasurer recently asked: " I recently became the treasurer for our local church and am trying to nail down what I need to include as income for our pastor's Form W-2. I was told that income includes weekly salary, monetary gifts, and half of the quarterly taxes that we pay directly to him. The first two items I get, but why would we include the quarterly taxes (and only half that amount) as income? "    Answer: In order to answer a question like this, it is important to understand the difference between a Federal Insurance Contributions Act ( FICA ) church employee and a Self-Employed Contributions Act ( SECA ) church employee. FICA employees have 7.65% withheld from each of their paychecks to contribute towards Social Security and Medicare. Their employers contribute an additional 7.65% to total the 15.3% tax due for FICA employees. Examples of FICA church employees include: administrative assistants, janitorial staff, and any ot...

The U.S. Citizenship and Immigration Services released a revised Form I-9. All new hires after January 21, 2017, must complete the revised Form I-9 . All prior released versions of Form I-9 will be invalid for new hires. Employers are required to have a completed hard copy of Form I-9 on file for each employee. Current employees do not need to re-complete the revised form. More information on Form I-9 can be found on the USCIS website .

Question : A non-profit organization recently asked if there is a change in the payroll reporting deadline for 2016. If yes, when do the Forms W-2 need to be filed? Answer : Yes, there is a change in the deadline for filing Forms W-2, W-3, and 1099-MISC. All forms must be submitted by January 31, 2017, for tax year 2016. The Forms W-2 and W-3 must be submitted to the Social Security Administration (SSA), and the Forms 1099-MISC must be submitted to the IRS. Form W-2, Wage and Tax Statement for employees  Form W-3, Wage and Tax Statement for employers Form 1099-MISC for reporting non-employee compensation to individuals or qualifying businesses (e.g., contractors, speakers, landlords, love offering recipients)  These changes to the Internal Revenue Code were a part of the PATH Act ,  Protecting Americans from Tax Hikes , Section 201, enacted on December 18, 2015. The IRS’s reminder provides more detailed information. The January 31 deadline has long appli...

Question: A church remodeled one of its buildings. One of the members coordinated the remodel, and the church paid individuals directly for their labor. According to the Internal Revenue Service's Form 1099-MISC instructions, one of the criteria is: "You made the payment for services in the course of your trade or business."  Since construction and remodeling is not the church's trade or business are the payments to these individuals reportable on Form 1099-MISC? Answer:   Yes the payments are reportable on Form 1099-MISC. According to  Form 1099-MISC instructions entitled " What is nonemployee compensation? If the following four conditions are met, you must generally report a payment as nonemployee compensation. You made the payment to someone who is not your employee.  You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations ).  You made the payment...

Question: An ordained minister perform typical ministerial duties. He also assists with bookkeeping and other administrative functions, but these functions are not his primary role. He raises his own support, which is given to the organization as designated/restricted funds for his needs. While the organization has leadership and a board which determines direction and vision, his hours are not specifically set and the manner/method of work is unspecified by the organization. 1.) Is he an employee or an independent contractor? 2.) If he is an employee, can the organization pay half of his social security and Medicare (FICA tax)?  Answer: Both employee ministers and independent contractor ministers pay their own self-employment tax. According to IRS Publication 517 ministers have the responsibility to pay self-employment tax. Publication 517 states, “These services [of a minister] include:  Performing sacerdotal functions,  Conducting religi...